The key difference
The key difference is that members of a mutual company receive dividends from company profits, while members of a co-operative leverage their combined buying (or sometimes selling) power for better prices.
Types of co-operatives
There are several different types of co-operatives, including consumer co-operatives, producer co-operatives, and purchasing co-operatives, but all are united by the desire for a good deal through combined purchasing power.
Consumer co-operatives, for example, are organizations dedicated to helping large groups of people buy merchandise or services at competitive prices.
Producer co-operatives are composed of producers who want to brand and sell their products competitively, and purchasing co-operatives are organizations composed of business or governmental and non-profit entities that wish to buy services.
The common point
What all co-operatives have in common is the pooling of a large group of buyers or sellers in order to get better deals than any would ever be able to achieve on their own.
Mutual companies are something quite different. Instead of member-owners who are entitled to good, competitive prices when buying or selling, as the case may be, mutual companies are made up of member-owners who have the right to dividends on the company’s profits.
An attractive ownership structure
It is common for these dividends to be awarded based on how much business the customer conducts with the mutual company. This is an attractive ownership structure for some organizations since ownership is shared among policyholders. This allows for the direct return of capital to them.
Mutual companies formulation
It is common for mutual companies to be formed by groups of professionals in a specific domain, which is an additional advantage since it allows for specialization.
Some industries are particularly well-suited for the mutual company structure. In particular, mutual companies are found among insurance firms, savings and loan associations, and banking trusts and community banks, all organizations in which it makes particular sense to have member-owners be in a position to receive dividends.
History of Mutual companies
Mutual companies have a long history, much of it bound up with insurance. Indeed, mutual insurance companies go back to 17th-century England. Benjamin Franklin founded the first American-based mutual insurance company to see success, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, in 1752. The company is still very much in business.
Still, over time there has been a trend away from mutual companies, with many opting to leave the structure in favor of joint-stock corporate status. This process is common enough to have a name: demutualization.
Thus, while similar in having a pool of clients who own them, co-operatives and mutual companies are different in that the purpose of the former is collective buying or selling while the purpose of the latter is to provide owner-members with payouts from the company.